Jiangsu Zhongsheng Gaoke EnvironmentalLtd's (SZSE:002778) growing losses don't faze investors as the stock hikes 16% this past week

Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Jiangsu Zhongsheng Gaoke Environmental Co.,Ltd. (SZSE:002778) share price is up 21% in the last 1 year, clearly besting the market return of around 7.0% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! The longer term returns have not been as good, with the stock price only 4.2% higher than it was three years ago.

The past week has proven to be lucrative for Jiangsu Zhongsheng Gaoke EnvironmentalLtd investors, so let's see if fundamentals drove the company's one-year performance.

See our latest analysis for Jiangsu Zhongsheng Gaoke EnvironmentalLtd

Because Jiangsu Zhongsheng Gaoke EnvironmentalLtd made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually desire strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Jiangsu Zhongsheng Gaoke EnvironmentalLtd actually shrunk its revenue over the last year, with a reduction of 42%. The stock is up 21% in that time, a fine performance given the revenue drop. To us that means that there isn't a lot of correlation between the past revenue performance and the share price, but a closer look at analyst forecasts and the bottom line may well explain a lot.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Take a more thorough look at Jiangsu Zhongsheng Gaoke EnvironmentalLtd's financial health with this free report on its balance sheet.

A Different Perspective

We're pleased to report that Jiangsu Zhongsheng Gaoke EnvironmentalLtd shareholders have received a total shareholder return of 21% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 4% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Jiangsu Zhongsheng Gaoke EnvironmentalLtd (at least 2 which make us uncomfortable) , and understanding them should be part of your investment process.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.